Wilmar International Limited

OCBC on 16 AUG 2012

Wilmar International Limited (WIL) reported a very disappointing set of 2Q12 results. Although revenue grew by 4.3% YoY to US$11,019.7m, core net profit declined 55% YoY to US$172.3m. WIL has declared an interim dividend of S$0.02/share, versus S$0.03 in 1H11. Management expects near-term operating environment to remain “challenging” in China, due to excess capacity in oilseeds crushing. Its Consumer Products business could also see margin squeeze due to rising input prices (especially from soy beans), while ability to raise selling prices may need approval from the Chinese government. To reflect the dismal 1H12 performance and still-tough operating environment, we pare our FY12 earnings forecast by 30% (FY13 by 23%). Based on a more conservative 12.5x blended FY12/FY13F EPS, versus 13.5x FY12F EPS previously, our fair value drops to S$2.90 (from S$3.87 previously). Maintain HOLD as stock is already more than two standard deviations below its 3-year average P/B.

Sharply lower 2Q12 results
Wilmar International Limited (WIL) reported a very disappointing set of 2Q12 results. Although revenue grew by 4.3% YoY to US$11,019.7m, driven by volume growth in its Palm & Laurics, Consumer Products and Sugar, reported net profit fell by a staggering 70.2% YoY to US$117.1m. WIL cites losses in Oilseeds & Grains and lower profits from Plantations & Palm Oil Mill; Sugar also posted higher losses while associates recorded lower contributions. Excluding non-operating items, core net profit declined 55% YoY to US$172.3m. For 1H12, revenue rose 6.9% to US$21,490.7m, meeting 42% of our FY12 forecast, while core net profit fell 52% to US$378.0m, or 22% of our full-year forecast. WIL has declared an interim dividend of S$0.02/share, versus S$0.03 in 1H11.

Near-term environment “challenging”
Management expects the near-term operating environment to remain “challenging” in China, due to excess capacity in oilseeds crushing. In addition, WIL also sees adverse impact from the weakening RMB against the USD; and it has taken steps to hedge its naturally long RMB position and also reduce any potential forex exposure. Meanwhile, its Consumer Products business could also see margin squeeze due to rising input prices (especially from soy beans), while ability to raise selling prices may need approval from the Chinese government.

HOLD with new S$2.90 FV
Management maintains that its long-term prospects remain positive, citing its sound business model. WIL adds it is well-positioned to capture growth in demand for agricultural commodities, especially in Asia and Africa. However, to reflect the dismal 1H12 performance and still-tough operating environment, we pare our FY12 earnings forecast by 30% (FY13 by 23%). Based on a more conservative 12.5x blended FY12/FY13F EPS, versus 13.5x FY12F EPS previously, our fair value drops to S$2.90 (from S$3.87 previously). Maintain HOLD as stock is already more than two standard deviations below its 3-year average P/B.